Bread Prices
On April 8, the Treasury announced a 34% import duty hike on wheat prices – the highest on record, which means consumers can expect bread prices to increase by at least 10%.
This bread price increase excludes the impact of recently hiked electricity tariffs and fuel prices, which will also raise bread prices. This increase will place further strain on the poor, as bread is the staple food of low-income households.
As it stands, poor households can barely afford sky-high food prices – the result of prolonged drought, which has plagued the farming industry.
Up until now, the Treasury had been apprehensive about approving the application Grain SA lodged with International Trade Administration Commission (ITAC) in December for a wheat price increase.
With the elections around the corner, hiking the price of a staple food may have political consequences for the government.
Automatic Wheat Formula
After a fruitless three-month wait, Grain SA proceeded to send a lawyer’s letter to the Treasury, demanding that the automatic wheat formula be applied.
On April 5, Grain SA and the Treasury met. However, Grain SA was dissatisfied with the outcome, lodging an urgent application in the High Court the next day. Grain SA based their application on the drop in the global wheat price.
Accordingly, a wheat tariff increase from R911.20 per tonne to R1, 224.31 per tonne was announced by the Treasury. This increase will apply for the remainder of 2016.
Concerned about the impact that the automatic tariff formula would have on bread prices and other staple foods, the Treasury requested that DTI Minister Rob Davies launch an urgent review of the wheat tariff increase. The Treasury also asked for a review of the sugar and maize formulas.
10% Bread Price Increase
Experts estimate that bread prices will increase by at least 10% as a result of the tariff hike. South Africa imports around 60% of its wheat. Due to the drought, we will have to import around 2.2 million tonnes in 2016 to end October. The local crop is estimated to be at around 1.5 million tonnes.
A number of years ago, the reference price for wheat was set at $294/tonne. However, the wheat tariff had to be adjusted upwards to make up for the difference, after the global wheat price dropped below this on a moving average basis. The price fell due to an excess of global wheat. Thus, Grain SA applied for a tariff hike, in order to bring the cost of imported maize to $294 per tonne.
The purpose of the reference price system was to urge farmers to grow more wheat, and to spare South Africa from having to import it.
Meat Prices May Double
Additionally, meat prices may double in upcoming months, according to the African Farmers Association.
Due to increasing fuel prices and countrywide drought, red meat, pork and chicken prices may rise in the near future, warns the association. Meat prices will further soar, due to accelerating inflation, rising interest rates and the electricity tariff hike.
The price of maize, which serves as feed for livestock, has increased drastically from around R1, 800 – R2, 000 previously to about R3, 000/tonne now. By winter, the price of maize may skyrocket to R5, 000/tonne says the association.